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Consumers not being hurt by referral fees, LSB consultants say

17 May 2010

Consumers are not being damaged by the current system of referral fees in conveyancing and personal injury, consultants have told the Legal Services Board.

The LSB is expected to decide this summer how to respond to the Law Society’s call for a ban on referral fees. The LSB’s consumer panel will publish a report on the issue later this month.

“There is no evidence that referral fees are causing consumers detriment in conveyancing or personal injury,” Kyla Malcolm, vice president of Charles River Associates, said.

She said there was no evidence that referral fees had led to a decline in the quality of conveyancing, and transactions appeared to be faster when lawyers were paying referral fees.

Malcolm predicted that if a ban was imposed, large firms would bring back the kind of complex arrangements which were in place before the ban was introduced in 2004.

She said that HIPS could provide a way for estate agents to get around any ban or that ABS firms could be developed with estate agents and solicitors, removing the need for referrals.

“A cap on referral fees could be useful if a group of consumers were suffering from especially high conveyancing fees, but there is no evidence of this,” she said.

Malcolm said that competition for conveyancing referrals since 2004 had led to an increase in referral fees, from £50 to £100 in 2004 to from £250 to £400 now.

However, she said that firms paying referral fees charged less, partly because they had more certainty in getting the work and could make efficiency gains.

In personal injury, Malcolm said that increasing competition for referrals among lawyers had pushed up average fees from around £400 in 2005 to £800 now.

“Referral fees have helped increase the number of motor claims, even though the number of accidents is falling,” Malcolm said.

She said there was evidence that better use of technology and better marketing had improved access to justice in personal injury.

Malcolm accepted that the price of insurance policies had gone up, but said that as long as valid claims were being brought it was “reasonable” for the cost of insurance to reflect that.

The research by Charles River Associates was based on more than 40 interviews with lawyers, judges, trade associations and regulators. Researchers reviewed existing research on referral fees, by the OFT and for Lord Justice Jackson’s report, and carried out a survey of estate agents.

Crispin Passmore, strategy director at the LSB, said the organisation’s board would discuss referral fees in June and July.

“By the end of the summer we should be able to say what the LSB thinks, and possibly a bit before.”

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